Two factors often determine stock prices in the long run: earnings and interest rates. Investors can’t control the latter, but they can focus on a company’s earnings results every quarter.
The earnings figure itself is key, of course, but a beat or miss on the bottom line can sometimes be just as, if not more, important. Therefore, investors should consider paying close attention to these earnings surprises, as a big beat can help a stock climb and vice versa.
Hunting for ‘earnings whispers’ or companies poised to beat their quarterly earnings estimates is a somewhat common practice. But that doesn’t make it easy. One way that has been proven to work is by using the Zacks Earnings ESP tool.
The Zacks Earnings ESP, Explained
The Zacks Expected Surprise Prediction, or ESP, works by locking in on the most up-to-date analyst earnings revisions because they can be more accurate than estimates from weeks or even months before the actual release date. The thinking is pretty straightforward: analysts who provide earnings estimates closer to the report are likely to have more information.
Now that we understand the basic idea, let’s look at how the Expected Surprise Prediction works. The ESP is calculated by comparing the Most Accurate Estimate to the Zacks Consensus Estimate, with the percentage difference between the two giving us the Zacks ESP figure.
When we join a positive earnings ESP with a Zacks Rank #3 (Hold) or stronger, stocks posted a positive bottom-line surprise 70% of the time. Plus, this system saw investors produce roughly 28% annual returns on average, according to our 10 year backtest.
Most stocks, about 60%, fall into the #3 (Hold) category, and they are expected to perform in-line with the broader market. Stocks with a #2 (Buy) and #1 (Strong Buy) rating, or the top 15% and top 5% of stocks, respectively, should outperform the market, with Strong Buy stocks outperforming more than any other rank.
Should You Consider Bristol Myers Squibb?
The last thing we will do today, now that we have a grasp on the ESP and how powerful of a tool it can be, is to quickly look at a qualifying stock.
Bristol Myers Squibb (BMY)
holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $1.73 a share 28 days away from its upcoming earnings release on February 2, 2023.
BMY has an Earnings ESP figure of +0.15%, which, as explained above, is calculated by taking the percentage difference between the $1.73 Most Accurate Estimate and the Zacks Consensus Estimate of $1.72. Bristol Myers Squibb is one of a large database of stocks with positive ESPs. Make sure to utilize our
Earnings ESP Filter
to uncover the best stocks to buy or sell before they’ve reported.
BMY is one of just a large database of Medical stocks with positive ESPs. Another solid-looking stock is
Axsome Therapeutics (AXSM)
.
Axsome Therapeutics is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on March 7, 2023. AXSM’s Most Accurate Estimate sits at -$1.04 a share 61 days from its next earnings release.
For Axsome Therapeutics, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of -$1.12 is +7.86%.
BMY and AXSM’s positive ESP figures tell us that both stocks have a good chance at beating analyst expectations in their next earnings report.
Find Stocks to Buy or Sell Before They’re Reported
Use the Zacks Earnings ESP Filter to turn up stocks with the highest probability of positively, or negatively, surprising to buy or sell before they’re reported for profitable earnings season trading.
Check it out here >>
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